Wealth manager trade body PIMFA has branded the FSCS’s budgeted levy for 2020/21 of £635m as “totally unsustainable” and says the levy must be reformed.

The FSCS announced this week that its levy for next year would rise by £87m to £635m due mainly to soaring SIPP and pension advice claims.

PIMFA says the FSCS compensation cost is at an all-time high and the burden on its member firms is at breaking point.

It wants the FCA to review if the levy system is still “fit for purpose.”

A recent member survey for PIMFA found that the last FSCS bill was an increase of 200% for some members and was an average 52% increase for all financial advice firm respondents.

As a proportion of their regulatory bill, 86% of large full-service wealth managers saw an increase of 57% from last year, and double the number of stockbrokers are paying above £1m annually.

PIMFA chief executive Liz Field said: “The year on year excessive level of compensation cost is such that we call upon the FCA board to carefully consider whether FCA’s existing supervisory regime is fit for purpose, and for (the Treasury) to fundamentally review the purpose of the levy system and its impact on good firms.

“The system is not working and fundamentally impacts on firm's ability to invest in their businesses and enhance services to clients.

“Our member firms do not advocate a no default supervisory regime and recognise the benefits to consumer confidence that FSCS provides, however, there is a failure in the system and these costs are simply not sustainable. Our research shows that the bills are already such that firms are at breaking point.”

PIMFA also highlighted that the FSCS final levy of £548m for 2019/20 was close to the entire cost of running the FCA last year.